to increase the total amount of its fixed costs . Example of Relevant Range Let’s assume that a manufacturer’s monthly production volume is consistently between 10,000 to 13,000 units of product requiring between...
to increase the total amount of its fixed costs . Example of Relevant Range Let’s assume that a manufacturer’s monthly production volume is consistently between 10,000 to 13,000 units of product requiring between...
two alternatives. Note: Incremental costs may include more than the change in variable costs. Example of Incremental Cost Let’s assume that a company has the following experience: Total cost of manufacturing 8,000...
to the manufacturing departments and then the departments’ direct and indirect costs (including the depreciation) are allocated to the products that utilize those departments. Manufacturing overhead in general is...
Often a U-shaped arrangement of the various machines involved in manufacturing a product. This layout eliminates the need to move the item being manufactured from one area or department of the factory to another. In...
Our Explanation of Standard Costing uses an easy-to-relate to example for illustrating a manufacturer's standard costs and variances. Also provided is a chart which indicates each variance, what it tells you, and where...
The sale, retirement, or exchange of property, plant and equipment.
What is a fixed expense? Definition of Fixed Expense A fixed expense is an expense whose total amount does not change when there is an increase in an activity such as sales or production. The words within a relevant or...
A loan in which the interest rate does not change over the life of the loan.
What is a fixed budget? Definition of Fixed Budget A fixed budget is a budget that does not change or flex for increases or decreases in volume. (“Volume” could be sales, units produced, or some other activity.) A...
What are fixed assets? Definition of Fixed Assets Fixed assets are a company’s tangible, noncurrent assets that are used in its business operations. The word fixed indicates that these assets will not be used up,...
See fixed expenses.
A term used when referring to property, plant, and equipment. Fixed assets other than land are depreciated.
Expenses which do not change in response to reasonable changes in sales or other activity.
A budget that flexes with volume. Under a flexible budget the budgeted amount of manufacturing overhead will increase if the company produces more units than planned. The flexible budget will decrease if the company...
In cost accounting this term means to allocate, apply, apportion, or spread manufacturing overhead costs to the production output. In terms of accounts receivable, assign means to pledge accounts receivable to a lender...
For a manufacturer these would include factory supplies and other materials considered to be manufacturing overhead.
See direct labor efficiency variance and variable manufacturing overhead efficiency variance.
Why would the cost behavior change outside of the relevant range of activity? Cost behavior often changes outside of the relevant range of activity due to a change in the fixed costs. When volume increases to a certain...
or standard cost per pound The quantity variance identifies whether the actual quantity of the input used was more or less than the planned or standard quantity for the actual output The variance analysis of...
with the costs of direct labor and manufacturing overhead) A prime cost The costs of direct materials are reported in the financial statements based on where they are: Raw materials not yet in production are...
, direct labor, and manufacturing overhead that are based upon the per unit amounts in the company’s annual profit plan. 11. __________ budgeting focuses on the expenditures for fixed assets that will likely affect the...
The assigning or dividing up of amounts. For example, depreciation is an allocation process because it assigns an asset’s cost to expense in each of the years the asset is expected to be used. There is also an...
to factory equipment are not period costs. Rather, the costs of repairs to factory equipment are product costs. The repair costs within the factory are part of the factory overhead (also known as manufacturing overhead)...
. (There are likely to be several accounts or sub-accounts in order keep track of the manufacturing supplies by category.) When the manufacturing supplies are used they will become part of the manufacturing overhead,...
statements. If a company has small inventory amounts and significant sales, a simple cost system that spreads manufacturing overhead costs solely on the basis of machine hours can result in a reasonably accurate balance...
Sorting and reporting expenses according to the type of activity for which the expense was incurred. The functional expense classifications for a nonprofit organization would be Program #1, Program #2, Management and...
the production equipment is variable, but the portion of the electricity cost used to light and air condition the manufacturing facility is fixed. These simple examples show it can be difficult to understand how costs...
A factory or manufacturing overhead rate used to allocate, apply, assign, or spread indirect product costs to items manufactured. Under traditional cost accounting, the burden rate might be a percentage of direct labor...
Depreciation (Flashcards) Download Single-Sided PDF Download Double-Sided PDF All Cards (35) Marked Wrong (0) Marked Right (0) depreciation This is the systematic allocation of the cost of a building, equipment,...
$232,000. The result was a favorable SG&A expense budget variance of $8,000. Manufacturing overhead costs were budgeted to be $400,000 but were actually $393,000. The result was a favorable manufacturing overhead...
consist of the costs of direct materials, direct labor, and manufacturing overhead Examples of Inventoriable Costs Assume that a retailer purchases an item for resale by paying $20 to the supplier. The item is purchased...
to be recorded as Manufacturing Overhead. Manufacturing Overhead is allocated to the products manufactured and will be part of the products’ cost. If the products are in Inventory, those products’ costs are assets....
The costs that should have occurred for the actual good output are known as standard costs, which are likely integrated with a manufacturer’s budgets, profit plan, master budget, etc. The standard costs involve the...
that the common costs or indirect costs that require allocation are not caused by volume. In other words, traditional cost allocations are often based on something other than the root causes of the costs. It is possible...
Is a manufacturer's product warranty part of its manufacturing overhead or is it part of its SG&A expense? The costs associated with a manufacturer’s product warranty are part of its selling expenses and...
will be allocated $20. Indirect manufacturing costs are also referred to as manufacturing overhead, factory overhead, or burden. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance...
Is a favorable variance always an indicator of efficiency in operation? In a standard costing system, some favorable variances are not indicators of efficiency in operations. For example, the materials price variance,...
ledger account that reports the cost of the goods that are on the factory floor. In this current asset account are the cost of the direct materials, direct labor and the allocation of manufacturing overhead for the...
for its selling and general administration will be an expense for the period indicated by the meter reading dates. However, the utility bill for the direct and indirect manufacturing operations is part of its...
To learn more, see our Nonmanufacturing Overhead Outline.
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